Cathode Material Earnings Shock... Domino Effect on Battery Lines

Battery material companies are consecutively reporting sluggish earnings. Amid a continuous decline in prices of key raw materials for batteries due to weakening electric vehicle demand and oversupply, there is an analysis that secondary battery companies will also be affected in a domino effect.

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According to financial information firm FnGuide on the 19th, EcoPro BM, a precursor manufacturer of cathode active materials, is expected to record sales of KRW 7.3977 trillion last year, a 38% increase from the previous year, but operating profit is forecasted to decrease by 16.1% to KRW 319.3 billion. Posco Future M, which produces cathode active materials from precursors, is also expected to see nearly 50% growth in sales to KRW 4.9338 trillion last year according to consensus estimates (average of securities firms’ forecasts), but operating profit is projected to fall by 13.5% to KRW 143.5 billion.

Cathode material company L&F previously announced a large-scale loss in its earnings report for the fourth quarter. It disclosed an operating loss of KRW 280.4 billion, significantly below market expectations of an operating profit of KRW 6.9 billion, which was perceived as an 'earnings shock.'

The poor performance of battery material companies such as cathode and anode materials is likely to extend to battery manufacturers as well. The main reason for the earnings slump is that they cannot raise delivery prices due to falling raw material prices. According to the Korea Mining Industry Promotion Corporation’s Resource Information Service, the price of lithium carbonate was 86 yuan per kilogram as of the 16th. Since reaching a peak of 581 yuan per kilogram in November 2022, prices have plummeted due to oversupply and weak demand. Lithium is a key mineral in cathode active materials, accounting for 40% of the production cost of electric vehicle batteries. Cathode active materials are made by adding lithium to precursors made from nickel, cobalt, and manganese.

Nickel is also trading at $15,880 per ton, a 26.5% decrease compared to the previous year's average. On the 11th, metal market research firm Benchmark Mineral Intelligence (BMI) lowered its nickel price forecast for this year from $20,600 per ton to $20,000 per ton due to oversupply and weak demand from China.

Manganese is priced at $1,135 per ton, down 11.9% from the previous year's average, and cobalt is at $28,690 per ton, down 16.5%. The price of graphite, an anode material, also fell 19.1% from the previous year's average to $555.

Cathode material companies contract with battery manufacturers to link cathode material sales prices to metal price fluctuations with a certain time lag. If prices fall between the time of raw material purchase and product sale, they incur losses.

The downward trend in raw material prices is transferring to batteries. According to market research firm TrendForce, the price of lithium-ion battery cells for electric vehicles in China fell 6-10% in December last year compared to the previous month. By cell type, the price per 1Wh (watt-hour) dropped 10.1% to 0.45 yuan for prismatic lithium iron phosphate (LFP) cells, 6.7% to 0.51 yuan for prismatic ternary cells, and 7.0% to 0.55 yuan for pouch-type ternary cells.

Accordingly, LG Energy Solution, the top domestic battery company, recorded a preliminary operating profit of KRW 338.2 billion for the fourth quarter of last year, about 42% lower than the market expectation of KRW 587.7 billion. The actual operating profit after deducting the tax credit from the U.S. Inflation Reduction Act (IRA) advanced manufacturing production tax credit (AMPC) was only KRW 88.1 billion.

Samsung SDI and SK On are in similar situations. Samsung SDI’s operating profit for the fourth quarter of last year is estimated to have decreased by 1.01% year-on-year and 2.05% quarter-on-quarter to KRW 485.8 billion. Eugene Investment & Securities analyzed that SK On’s operating loss for the fourth quarter of last year widened to KRW 187.5 billion.

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